Eidos has received a cash offer from Japan’s Square Enix, valuing the UK video games developer at £84.3m ($120.8m).
The move marks Square’s attempt to diversify into franchises that appeal more to western gamers, such as Eidos’s Tomb Raider game, as Square slashed its profit forecasts on Thursday.
Shareholders in Eidos, which is in the first year of a three-year restructuring, would receive 32p a share under the bid. The offer price is a 129 per cent premium to Eidos’s closing share price on Wednesday of 14p, and is 258 per cent above the share price last month before Eidos announced it was in early stage talks with an unnamed suitor. Eidos shares leapt 17½p to 31½p on Thursday.
Square Enix, best known for the Final Fantasy series of games, said the proposed deal was a “highly attractive opportunity” to acquire Eidos’s gaming brands, which also include Hitman and Championship Manager, as well as its development studios around the world.
Eidos’s directors, who hold about 0.08 per cent of the shares, are backing the deal.
Tim Ryan, Eidos chairman, said: “We believe that this cash offer provides Eidos shareholders with an attractive price and certainty [against] today’s challenging market backdrop.”
Disappointing sales of the latest Lara Croft title meant that Eidos could have faced a funding shortfall by June.
Time Warner, a 20 per cent shareholder in Eidos and tipped as a potential bidder, is “contractually obliged” to vote with the board on any offer. But that does not rule out a counterbid from the US entertainment group, which has made clear its ambitions to increase its presence in the games market. Time Warner declined to comment.
Eidos holds the rights to make games out of Warner properties including Batman and Looney Tunes characters such as Bugs Bunny.
Square Enix, one of Japan’s largest video game companies, has been hunting for acquisitions to counter several strategic weaknesses. The company on Thursday cut its full-year net profit forecast by 62.5 per cent because of weak trading in its physical arcade business and delays to the launch of important software titles.
It relies heavily on two role-playing franchises – Final Fantasy and Dragon Quest. 87 per cent of its sales last year came from the stagnant Japanese market.
The pound’s slide against the yen means that Square can buy the company for only a fraction of the Y104bn ($1.1bn) of cash on its balance sheet.
UBS is advising Square Enix, and Citi is advising Eidos. The scheme of arrangement required for the transaction is expected to be posted in early March, with Eidos shareholders voting on the deal in April.